ECON$30$T$5201920.$pdI

A local company is considering purchasing a $3$D printer worth $$5000.$ The company can finance debt at $10\%$ and equity at $12\mathrm{.}5\%.$ The company does not want to finance this project using more than $40\%$ debt. The corporate tax rate has just increased from $21\%$ to $37\mathrm{.}5\%.$ The firm expects the following cash flow schedule:

Year $1$:$$3000$

Year $2$: $$2000$

Year $3$:$$2000$

a$)$ Explain the concept of the weighted average cost of capital.

$[4$ marks$]$

b$)$ Calculate the weighted average cost of capital for the firm.

$[4$ marks$]$

c$)$ How long will it take for the project to repay the $$5000?$

$[2$ marks$]$

d$)$ How long will it take for the project to repay the equivalent of $$5000$ discounted to today? $[2$ marks$]$